What Does GAP Car Insurance Cover and What Does It Exclude?

The view over the dashboard of the road ahead is mostly secure since this driver has GAP insurance.
••• Katja Kircher/Maskot/Getty Images

If you are switching from an older car to a new one, or maybe buying your first car, it is a good idea to learn about what GAP car insurance covers and when you need it. Finding cheap car insurance when you are buying a new car is always one of the things you look for. But you also want to make sure that the insurance you buy covers you fully and doesn't leave you paying out of pocket in a claim.

When you buy a new car, one of the options you can consider is whether or not to purchase GAP car insurance. Here is what you need to know about what GAP insurance covers to help you decide whether you should buy it (or not).

What Is GAP Insurance?

GAP (Guaranteed Asset Protection) insurance is a type of optional coverage. To understand GAP Insurance, you first need to understand that on a standard car insurance policy, your car is covered for the actual cash value (ACV) or depreciated value at the time of a claim.

GAP insurance is a type of extra coverage for the difference between the ACV of your car and the amount you owe your lender or leasing company at the time of a claim. GAP insurance will provide you with enough money to cover the difference between what is owed for the car, and what the insurance company pays out in the event of an accident or loss.

Learn more about GAP insurance requirements and your rights.

How GAP Insurance Works

If you have an accident and need to replace your car, a standard car insurance policy will pay the ACV.

Let's say that your ACV is $10,000, but you owe $13,000 on your auto loan. Without GAP insurance, you will owe the difference of $3,000, even though you no longer have the car.

Some car leases have GAP clauses or a GAP waiver that may forgive the difference. But a loan will not forgive the amount of money you borrowed to buy your car, and they will hold you responsible for paying back your loan. GAP car insurance will give you the money you need to pay back the rest of the loan or lease, so you do not end up paying out of pocket.

In this example, your car insurance would pay the first $10,000, and then your GAP insurance would give you the remaining $3,000. Then, you would come out even.

An Example of GAP Insurance

  • You owe $13,000 on your car, and you have a total loss accident.
  • Car insurance pays ACV $10,000, and you still owe $3,000 on your car loan.
  • The difference of $3,000 is paid by your GAP insurance.


Most GAP insurance does not include coverage for the deductible, but some insurers will offer it. When shopping around for your GAP insurance, be sure to ask if the GAP will cover the deductible or not.

What Does Total Loss GAP Car Insurance Cover?

GAP insurance covers damages that are insured by your standard car insurance. Examples include:

  • Theft
  • Fire
  • Vandalism
  • Accidents
  • Flood
  • Tornado
  • Hurricane

GAP car insurance works with your basic comprehensive and collision insurance on your car. You need to have a basic policy before GAP insurance pays in a claim. Some GAP car insurance policies will also cover your insurance deductible.

What Does GAP Car Insurance Exclude?

Understanding the details of your GAP car insurance is vital because there are coverage gaps that exist. These gaps include things that you're likely not aware of. Below are the most common exclusions for GAP car insurance.

6 Common GAP Car Insurance Exclusions to Ask About

Here are some GAP insurance exclusions to ask about so that you will not be surprised at the time of a claim.

  1. You need to have basic car insurance before GAP insurance will kick in. Cars that are not covered by both comprehensive and collision insurance will not be eligible for the GAP payout or coverage.
  2. Any equipment on your car that was not installed in the factory is not necessarily covered.
  3. GAP insurance covers the difference between what you owe, and what you are paid in an insurance claim. If you put down money on the car loan—such as money from a trade-in or a leased car—then you might not be able to recover that in a total loss or claim. GAP insurance is not "replacement cost insurance."
  4. Incurred costs for any other products that you add to the loan or lease, such as extended warranties.
  5. Any of your unpaid or overdue lease or loan payments.
  6. Any financial penalties or security deposits on your leased car.

These are a few examples of exclusions that you may find in a GAP insurance policy. Insurance coverages change over time, and some products will cover more things and add bells and whistles to attract you as a client.

Be sure to use the list above to ask the right questions. Also, be sure to check your own policy to see what your specific GAP coverages and exclusions are. Some insurance products will offer you more perks, and others may not.